Mortgage costs rise AGAIN as Middle East conflict sends rates soaring – how to keep your bills down

HOMEOWNERS face rising mortgage costs again after renewed uncertainty in the Middle East spooked lenders. Mortgage rates have been slowly climbing over the past few weeks, with the average rates for a five-year fixed deal climbing to 5.66% in July, according to data from Moneyfactscompare.co.uk. Meanwhile, the average two-year fixed residential mortgage rate now stands at around 5.63%. That’s considerably higher than this time last year, when averages rates sat at 4.96% for a two-year fixed deal and 5% for a five-year fix. Sign up for the Money newsletter Thank you! Rates started to fall slightly in June when tensions in the Middle East eased and an interim agreement was reached around the Strait of Hormuz – a major global oil shipping lane. This improved the outlook for inflation and interest rates as fears over further rises in oil prices eased. Inflation measures how quickly prices are rising over time. The Bank of England increases interest rates to try to bring inflation down by encouraging people to save rather than spend. But a higher base rate means higher interest rates on finance products including mortgages, meaning higher costs for borrowers. However, tensions have renewed over the past few weeks and talks have stalled, which has spooked markets and pushed up expectations for inflation and interest rates again. That’s bad news for the roughly 750,000 households whose fixed rate deals are set to expire this year who are currently paying rates below 3%. Most read in Money Nouran Moustafa, a financial adviser at Roxton Wealth, said mortgage rates have “become hostage to geopolitics again”. “Earlier this year the Iran war pushed oil prices and inflation expectations higher, which fed directly into swap rates – a type of financial agreement affecting mortgage rates – and forced lenders to reprice,” she said. “We saw some relief when tensions eased, but renewed uncertainty has pushed borrowing costs up again.” Peter Dockar, chief commercial officer at Generation Home, added: “As long as this uncertainty persists, rates are likely to stay higher. “This will play out all over the world, but the UK is particularly vulnerable because our economy was already growing more slowly than hoped and because we import so much energy. “Some damage is already done – even if the US-Iran conflict ended tomorrow, there would still be a lasting impact on our economy.” What’s next for mortgage rates? Experts say that over the next few months, buyers should expect rates to remain high and there to be volatility as lenders and the markets watch how the tensions in the Middle East continue to unfold. Ms Moustafa said: “Over the next few months I expect volatility rather than a straight line up or down. If oil remains elevated or the conflict escalates, rates could stay under upward pressure. “A genuine de-escalation, combined with softer inflation data, could bring swap rates down quickly and restart lender competition.” Matt Coulson, founder of Heron Financial, added that anyone buying a home or looking to remortgage should “manage their expectations”, as the falls in rates previously predicted “don’t look likely over the next few months”. “The Bank of England held the base rate in July, and tellingly three of its own members wanted them higher, with inflation expected to climb again towards the end of the year. That’s just not the backdrop for rate cuts. “What’s actually nudging rates up right now is swap rates reacting to the Middle East. I’d expect volatility more than a clear direction.” What should you do if you’re looking to remortgage or buy? If you are thinking about buying a home over the next few months or your mortgage deal is ending and you need to switch to a new rate, experts advise locking one in sooner rather than later. Most lenders will allow you to bag a mortgage deal up to six months before your new deal actually needs to start, meaning you’ve locked that rate in. But, crucially, if rates come down, you can still swap to a better deal before your new contract actually begins. Ms Moustafa said: “For borrowers, this is not a market where I would gamble on tomorrow being cheaper. Secure something sensible now and review it if pricing improves before completion.” How to get a cheaper mortgage deal To get the best mortgage rate, it’s usually a good idea to lock in a fixed-rate deal rather than fall onto your lender’s Standard Variable Rate (SVR), as these tend to be much higher. The average SVR was 7.13% in July, according to Moneyfacts, which is considerably higher than typical fixed rate deals. To bring down monthly repayments, you can also extend the length of your mortgage term. The default length for a mortgage is 25 years, but you can extend it to 30 years or even longer to reduce the amount you have to repay monthly. It’s a good idea to reduce your term again later if affordability improves, though, as repaying over a longer term increases the amount you pay in interest. You could also ask your lender about swapping onto an interest-only mortgage temporarily if you’re struggling with repayments. That means you just pay off the interest and not any of the actual debt. It’s only a good idea to do this as a last resort, though, and to swap back to a regular repayment mortgage when you can afford to do so. Having a larger deposit, or a lower ‘loan-to-value’ – the amount you borrow compared with the value of the property – also tends to unlock better mortgage rates. So, if you can afford to put more cash down, that could save you money long-term. Make sure to compare a range of lenders before accepting a mortgage deal and consider speaking to a broker as they often have access to the best deals – but be aware you’ll usually have to pay them a fee. Comment now